Wednesday, April 30, 2014

Mr Faber, the author of the Gloom, Boom & Doom Report newsletter, said that after their huge bull run since 2009, US stocks would enter a bear market, dragging prices down by 20 or 30 per cent.

In China, a huge build-up in consumer credit since the government unveiled an economic stimulus plan in 2008 would burst sooner or later, he said.

But Dubai’s property market was at a less critical phase, Mr Faber said on the sidelines of the Middle East Investment Summit in Dubai on Wednesday.

“I don’t think we’re yet in a bubble stage but we had a big rise in property prices already,” he said. “We have not reached the 2007 peak yet. We’re not in a bubble yet, but it may become a bubble in the future.”

Prices in Dubai’s property market grew by as much as 40 per cent last year as the emirate benefited from returning investor confidence and buyers from less-stable parts of the region. But as new megaprojects have been unveiled in recent months, some observers have begun drawing parallels to the previous property boom before 2008. After reaching historic highs, prices then sank by more than half as credit dried up and confidence crumbled.

In the US, both the Dow and the Standard and Poor’s markets are frequently touching new highs, while the Nasdaq has reached its highest level since the Dotcom boom ended in 2000.

“We have had this huge expansion in the S&P level since 2009. The S&P was at 666, it went to over 1,800 and at some point we will have a bear market, 20 to 30 per cent,” he said. “Since October 2011, we haven’t even had a 10 per cent correction.”

Analysts are questioning the sustainability of the stock rally as the Federal Reserve tapers a monetary stimulus programme that was until January pumping US$85 billion into the economy every month.

Mr Faber said he was invested in 10-year US treasury notes as, he believed, when stock prices declined investors would race for the relative safety of cash and treasury bonds.

In China, Mr Faber said, he was concerned about the 50 per cent growth in credit in the past five years.

“This credit bubble in China is going to burst,” he said. “The question is will it burst now or can they postpone the problem once again? Possibly, but at some point growth will slow down considerably.”

He said he was convinced annual GDP growth in China was no longer 7 per cent but more like 4 per cent.

Expectations are growing that Chinese policymakers may intervene to boost the economy in an effort to help the economy achieve its 7.5 per cent annual target.

A preliminary survey of factory data released on Monday revealed that the manufacturing sector had deteriorated for the third month running. Industrial output figures for the previous two months had also been weaker than anticipated.

Monday, April 28, 2014

While Faber generally seems to be a long-term bull on China, he had some disquieting things to say about the extent of malinvestment in China due to the recent round of government stimulus and infrastructure-oriented investment.

Faber told Trish Regan and Matt Miller “I think that we had a colossal credit bubble in China and that this credit bubble is now being gradually deflated….if I look at export figures from China, and they are very closely correlated to overall economic growth, then there is a huge discrepancy between what China reports and what China’s trading partners are reporting.”

He said, “There’s lots of funny things that are happening in China. And when the whole thing unwinds it will be a disaster.”

His view is that the trade figures out of China do not correspond with the aggregated trade figures coming out of China’s trade partners. He believes the economy has slowed markedly and that GDP growth is more in the 4% region than the 7.5% region.

Saturday, April 26, 2014

In a free market economy, you will always have price fluctuation. The Federal Reserve today, artificially manipulates asset prices up. It’s a huge mistake, but that is what they do. To answer your question specifically, we had a bear market that ended March 6th, 2009 (S&P at 666). We are at 1800 now, almost three times higher. Over the last 2 years, most equity markets around the world, most markets have been down (they are not following to the upside), but in the US an increasing number of shares are breaking down, we have had very heavy insider selling recently, high valuations and extremely high corporate profits from historical standards. My view is that in a month time, the bull market will be 5 years old. That’s the second longest bull market in the last 100 years. I would not buy shares. Can the market go up another 20%? It’s like the Nasdaq in late 1999, where the Nasdaq went up another 30% between January and March. People were crying afterwards with their losses.

So markets go up and down. I think that the upside potential now is very limited and there is considerable downside risk, probably much more downside risk than most investors consider.

Thursday, April 24, 2014

Basically we had a huge run up in prices between 1999 (255 USD) to early September 2011 (1920 USD). We have been in a correction period. Now I think the correction period was partly justified because there was too much enthusiasm and speculation, leading to the peak of 2011. But I think that there have been some market manipulation, it could be. My sense is that the correction has probably come to an end, because if anything the fundamentals are much better today than they were at that time. But the price is down.

Every investor understand the principle buy low and sell high. When prices are low, nobody wants to buy. We also had very negative sentiment recently. I am not so sure about asset markets as we could one day after this colossal asset inflation of the last 20 to 30 years, also have asset deflation. But when I compare gold shares and the price of gold to the S&P 500, the S&P is up substantially since 2011 and gold is down.

Tuesday, April 22, 2014

My view is this. We wouldn’t have a conflict in Asia if there was no intervention by the US. The US has the security pact with Japan and military and naval bases all over Asia. The Chinese economy is highly vulnerable in the interruptions in the supply of metals and oil, because 47% of global metals consumption is nowadays coming from China (up from 4% in 1990 and 10% in the year 2000). It has become a huge factor; for their industry, they need iron ore from Australia, copper from Australia, oil from the Middle East, etc. The Chinese are very concerned about interruptions of supplies. Over time, the Chinese would want to control the East and South China Sea. I do not think that they have any aggression plans. The US would not be particularly happy if the Chinese or the Russians would have military bases in the Carribean, Mexico, Canada, The Chinese cannot accept to be encircled by military bases by the US in Central Asia, in North East Asia and in South Asia. So I believe the tensions will increase over time.

Sunday, April 20, 2014

I think, if the Chinese economy imploded, it is likely that the currency would begin the weaken (the Yuan). Or that the government would implement a devaluation of the Yuan. If that were the case, I think that Chinese individual investors would rather shift of their money in gold (which they can buy in China nowadays) then keep the funds in the local currency. I think that trouble in Asia and geopolitical unrest in Asia, along with [economic] problems in the rest of the world, may actually lead to higher gold demand rather than lower gold demand.

Monday, April 14, 2014

“Well, I have talked about a meaningful slowdown in the Chinese economy for more than a year. Now the government had been very good at hiding the slowdown, but it is now becoming clearer that the slowdown is on the way. I suppose that China has been and will grow at 4% per annum at the most, which is a relatively a slow growth rate, but it is a very high growth rate compared to, say, that in the US or Europe.”

Saturday, April 12, 2014

“Basically, what they are usually saying is that everything is data dependent. In other words, since October 2011, we have not had a significant correction in the market. The largest corrections were those of less than 11% and actually, over the last three to four months, we have gone up very strongly. Now if the data deteriorates and if the stock market declines by 20% over a given period of time, I think the US Fed would actually increase asset purchases and actually give up the tapering that they propose.”